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A franchise is an investment in which you pay another business for the right to use its business model and products. A franchisor is the party granting the right, and the franchisee is the party buying the right. Essentially, the franchisor acts as a parent, guiding the franchisee through startup procedures and providing some degree of operations and advertising support.

Franchisor Responsibilities

The franchisor typically helps a new franchisee get off the ground, providing advice concerning location, setup, equipment, staffing, supply sourcing, advertising, staff training and other aspects of starting a new business. While you might have the ability to design and implement many of these elements yourself, the franchisor has proven experience that draws on years of trial and error. Also, you'll benefit from any large-scale advertising campaigns the franchisor implements.

Franchisee Responsibilities

In return, the franchisee might pay the franchisor a startup fee, a percentage of future gross revenues and a set fee for advertising costs. Also, the franchisee usually cedes control over certain aspects of the business so the franchisor can protect the brand. For example, a franchisee might agree to maintain certain quality standards, keep prices in line with the franchisor’s overall business strategy and participate in large-scale marketing promotions. These limitations protect the integrity of the franchise system, preventing a few poorly run franchises from ruining the whole system’s reputation.

Mutual Influence

The nature of the relationship between a franchisee and franchisor varies widely, so read contracts carefully and ask current franchisees for input before investing. For example, some franchisors grant franchisees the right to veto business decisions, such as marketing strategies, allowing franchisees to influence the direction of the franchise as a whole. Other franchisors are more authoritarian, strictly limiting the influence of individual franchisees.

Considerations

As with any partnership, the devil is in the details. A functional, supportive relationship benefits both parties, but a domineering franchisor might limit the success of its franchisees. For example, without veto rights, franchisees might be vulnerable to bad business decisions made by the franchisor. A hands-off or powerless franchisor could be just as bad, allowing rogue franchisees to destroy its brand.

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About the Author

Stan Mack is a business writer specializing in finance, business ethics and human resources. His work has appeared in the online editions of the "Houston Chronicle" and "USA Today," among other outlets. Mack studied philosophy and economics at the University of Memphis.

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Mack, Stan. "The Difference in Franchisee and Franchisor." Small Business - Chron.com, http://smallbusiness.chron.com/difference-franchisee-franchisor-24303.html. Accessed 19 December 2018.

Mack, Stan. (n.d.). The Difference in Franchisee and Franchisor. Small Business - Chron.com. Retrieved from http://smallbusiness.chron.com/difference-franchisee-franchisor-24303.html

Mack, Stan. "The Difference in Franchisee and Franchisor" accessed December 19, 2018. http://smallbusiness.chron.com/difference-franchisee-franchisor-24303.html

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